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Author: Guillermo Gallego
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
A pervasive problem for retailers is to make assortment and inventory procurement decisions of substitutable products with the goal of maximizing expected profits over a pre-defined selling horizon. Multiple inventory replenishments are not allowed. This problem is challenging because of demand substitution effects that are driven initially by the assortment decision and later by stockouts. We propose intuitive and easy-to-implement heuristic based on the sample average approximation method coupled with the Markov chain approximation to discrete choice modelling. We show that our heuristic is asymptotically optimal, and quite effective even in the non-asymptotic regime. Our heuristic exhibits very small optimality gaps and outperform, sometimes dramatically, traditional newsvendor solutions that ignore dynamic substitution effects. Our numerical analysis also reveals that the newsvendor heuristic may perform quite well when the assortment is properly chosen and demand variability is relatively low. These managerial insights help decide when to employ the traditional newsvendor solution. We also look into endogenous pricing and show that even a simple heuristic can significantly enhance profits if prices can be adjusted sufficiently often. Another finding is that price flexibility mitigates the need for safety stocks to the point that not hedging inventories is often better than hedging them.
Author: Guillermo Gallego
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
A pervasive problem for retailers is to make assortment and inventory procurement decisions of substitutable products with the goal of maximizing expected profits over a pre-defined selling horizon. Multiple inventory replenishments are not allowed. This problem is challenging because of demand substitution effects that are driven initially by the assortment decision and later by stockouts. We propose intuitive and easy-to-implement heuristic based on the sample average approximation method coupled with the Markov chain approximation to discrete choice modelling. We show that our heuristic is asymptotically optimal, and quite effective even in the non-asymptotic regime. Our heuristic exhibits very small optimality gaps and outperform, sometimes dramatically, traditional newsvendor solutions that ignore dynamic substitution effects. Our numerical analysis also reveals that the newsvendor heuristic may perform quite well when the assortment is properly chosen and demand variability is relatively low. These managerial insights help decide when to employ the traditional newsvendor solution. We also look into endogenous pricing and show that even a simple heuristic can significantly enhance profits if prices can be adjusted sufficiently often. Another finding is that price flexibility mitigates the need for safety stocks to the point that not hedging inventories is often better than hedging them.
Author: Fei Fang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Aylin Polat
Publisher:
ISBN:
Category : Inventory control
Languages : en
Pages : 190
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Book Description
Author: Kelly Yunqing Ye
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
We consider the joint pricing and inventory decision problem for a single retailer who orders, stocks and sells multiple products. The products are competitive in nature, e.g., these maybe similar products from multiple brands. Demand for a product depends on its price as well as the price of all competing products. We show that the optimal pricing and inventory policy is similar to the base-stock, list-price policy which is known to be optimal for the single product case. In addition, the base-stock level of each product is nonincreasing with the inventory level of other products. This structure suggests that one can improve profit by simultaneously managing all the products rather than managing each product independently of other products.
Author: Ahmet Kuyumcu
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Jing-Sheng Jeannette Song
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper studies dynamic inventory and pricing decisions for a set of substitutable products over a finite planning horizon with full backlogging. The objective is to maximize the total expected discounted profit. We present a general stochastic, price-dependent demand model that unifies many commonly used demand models in the literature. The original formulation is not jointly concave in the decision variables and is therefore intractable. One key observation is that the problem becomes jointly concave if we work with the inverse of the price vector -- the market share vector. With this variable transformation, we are able to characterize the optimal policy and develop algorithms to compute it. In each period, the optimal policy first identifies a set of the products that are overstocked and hence need no replenishment and then specifies the optimal order-up-to levels for under-stocked products and the optimal market shares (and prices) for all products, both of which are functions of the overstocking levels. We further establish conditions under which the optimal policy demonstrates certain monotonicity property that can greatly enhance computation. Finally, we develop several computationally efficient heuristic policies and numerically compare them and discuss the interplay of pricing and inventory decisions.
Author: Sari Rida Kalakesh
Publisher:
ISBN:
Category :
Languages : en
Pages : 76
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Book Description
Retail represents the second largest industry in the United States with nearly $ 4 trillion in annual revenues and a large capital tied-up in retail inventories. However, the Marketing and Economics literature typically study pricing and var iety (assortment) decisions while ignoring inventory costs. This project incorpo rates the important effects of inventory on pricing and variety decisions for a retailer's product line composed of substitutable items. The retailer's custome rs make their buying decisions for items in the product line based on a random u tility function. A popular model for consumer utility (choice) in this situation is the Multinomial Logit Choice (MNL) model. However, MNL suffers from the inde pendence from irrelevant alternative (IIA) property, which basically implies tha t items in the product line are broadly similar. A remedy to this limitation is to adopt a Nested Multinomial Logit (NMNL) choice model, an enhancement of the M NL, which has received little attention in the retail literature. In this project, we study pricing, variety and inventory decisions under NMNL co nsumer choice and within a single-period newsvendor-type inventory setting. We d erive a close-form expression for the retailers expected profit function of pric es, assortment, and inventory levels. We then numerically analyze the structure of a retailer's optimal assortment, prices and inventory levels. To enhance our understanding of the problem, we develop models of different flavors involving d eciding on two out of three basic pricing, variety and inventory decisions befor e considering all three decisions jointly. Specifically, we start by analyzing p ricing and variety decisions while assuming ample supply (i.e., infinite invento ry levels). We then study a second situation where prices are exogenously fixed and the retailer decides on variety and inventory levels. We finally study a thi rd, and perhaps most important, situation where the retailer jointly decides on pricing, variety and inventory. We observe that the optimal prices, assortment and inventory levels have simple structure in all three situations. This sugges ts that "good" practical solutions for the complex problem of joint pricing, var iety and inventory decisions within the realistic setting we consider could be o btained with ease.
Author: Oben Ceryan
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
Firms that offer multiple products are often susceptible to periods of inventory mismatches where one product may face shortages while the other has excess inventories. In this paper, we study a joint implementation of price- and capacity-based substitution mechanisms to alleviate the level of such inventory disparities. We consider a firm producing substitutable products via a capacity portfolio consisting of both product dedicated and flexible resources and characterize the structure of the optimal production and pricing decisions. We then explore how changes in various problem parameters affect the optimal policy structure. We show that the availability of a flexible resource helps maintain stable price differences across products over time even though the price of each product may fluctuate over time. This result has favorable ramifications from a marketing standpoint as it suggests that even when a firm applies a dynamic pricing strategy, it may still establish consistent price positioning among multiple products if it can employ a flexible replenishment resource. We provide numerical examples for the price stabilization effect and discuss extensions of our results to a more general multiple product setting.
Author: Uday Apte
Publisher: Springer Science & Business Media
ISBN: 0387342141
Category : Business & Economics
Languages : en
Pages : 475
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Book Description
This book presents recent research directions that address management in the information economy. The contributors include leading researchers with interests in a diverse set of topics who highlight important areas and point to some important topics for future research. The book begins with perspectives at the level of the economy as a whole and then progressively addresses industrial structure, sectors, functions, and business practices.
Author: Saibal Ray
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
In this paper, we focus on a firm selling a single make-to-stock product to price-sensitive end customers. We develop an integrated operations-marketing model that can help determine the relevant profit-maximizing decision variable values for two pricing policies that the firm might follow - price as a decision variable, which is advocated by academicians, and mark-up pricing, used by most practitioners. We first consider an EOQ-based model with price and order quantity as independent decision variables. We then develop an analogous model where price is a mark-up over operating costs per unit, and order quantity becomes the sole decision variable. We are able to ascertain the optimal decision variable values for each model for log-linear and linear demand functions. We prove that for such profitmaximizing models, the optimal batch size is not necessarily monotone increasing in set-up cost. Interestingly, our numerical/analytical evidence suggests that from a profit perspective it is better for managers to be aggressive on price rather than reducing price too much, especially for highly price-sensitive and non-linear demand. Moreover, we establish that, in general, the profit penalty for not including inventory costs in determining the optimal batch size, or ignoring the batch size optimization issue in a mark-up price model is not significant. Only when the set-up cost is quite high and/or the firm faces non-linear demand from highly price-sensitive end consumers does it become crucial for managers to determine the exact optimal batch size and base the mark-up price on the entire unit operating cost, not only the unit (variable) production cost.
